Stagflation in History

When the US was hit by inflation during a recession in the 1970s, the word "stagflation" was coined. Some believe that this incident was caused by the Nixon administration's policies, which strongly urged the Federal Reserve to raise the money supply in tandem with the White House's policy of wage and price controls.

At first, the approach appeared to be a good idea, but an unexpected rise in oil prices severely damaged almost all supply chains. These elements came together to cause double-digit inflation in 1973 and 1974 as well as an almost twofold increase in the unemployment rate. Consequently, consumer spending decreased sharply.

Strategies to Survive During Times of Stagflation

Prepare for the worst! Since stagflation can happen at any time and for a variety of reasons, it is important to prepare for it even when the economy is doing well. During times of economic prosperity, it is common for people to spend more. However, during times of stagflation, people tend to cut back on spending. Therefore, it is wise to invest in savings plans during economic prosperity to fight such gray swan events.